9th Circuit arbitration decision could impact employment disputes

The 9th Circuit handed down an arbitration-related decision yesterday that could help corporate defendants in employment disputes.

In Matthew Kilgore v. KeyBank, a flight school student sued a bank, claiming it fraudulently approved his student loan when it knew that the school he was attending was about to go out of business. The plaintiff sought class action status. He also sought an injunction to prevent the bank and a loan servicer from reporting loan defaults to credit agencies and from enforcing any promissory notes against students.

The bank moved to compel arbitration, citing an arbitration provision in the promissory note between the flight school’s students and the bank. A district court judge refused to compel arbitration, but on appeal, a three-judge panel for the 9th Circuit reversed the lower court’s decision.

The 9th Circuit reasoned that the arbitration section of the promissory note wasn’t unconscionable because it gave students 60 days to opt out of the arbitration agreement. Also, the provision was “in its own section, clearly labeled, in boldface.”

The decision continues a trend of courts deferring to the Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion, in which the high court ruled that the Federal Arbitration Act preempted a California state law invalidating class action waivers in arbitration agreements.

Experts say that although Kilgore concerns a consumer dispute, it could have big implications for the employment sector, as companies often mandate that employees sign arbitration agreements.

“It’s a good decision for employers because it gives us support by analogy for an argument that we’d like to make: that enforcing arbitration agreements is not counter to public policy, is not unconscionable,” said Heather Sager, a Vedder Price shareholder, told Thomson Reuters.

Nixon Peabody Partner Scott O'Connell, who argued the case on behalf of the bank in Kilgore, told Thomson Reuters that the 9th Circuit’s ruling was another step in the direction of arbitration clauses being enforced in that circuit. “The courts are not going to make it exceedingly difficult for companies to have these provisions,” he said.